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Australia’s Property Market Getting Ugly

With many of the major real estate analysts reporting on the state of the Australian housing market at the end of July, the consistent results but conflicting opinions relating to the data suggest that Australia’s property market is getting ugly as those with vested interests continue to talk up the worsening data, and sensationalists talk of nothing but doom and gloom.

One would imagine that all this hype, negativity and worthless statistical analysis would be having a particularly harmful effect on the market, but a recent report in the International Herald Tribune has shown that in Europe for example, the media can crow on all it likes about the credit crunch, mortgage market meltdowns and the end of the world, but people everywhere still retain perspective and therefore long-term optimism.  So, is the same true in Australia?

As Australia is lagging a little behind America, the UK and now Europe in terms of the rapidity at which house prices are falling and foreclosures are rising, it will take time to see how sentiment on the ground pans out.  But in Europe and the UK at least, the International Herald Tribune report identifies just how realistic and ultimately optimistic most people are.  After all, we didn’t all come down in the last rain shower as many media reports would imply.  The majority of us have seen, lived through or at least heard about crashing markets before, of periods of massive uncertainty in the housing market, of repossessions outnumbering mortgage acceptances and of interest rates rising far more rapidly than house prices.  Which is why most people can accept that in the short-term they are in for a rocky ride, but that over the longer-term there is very little doubt about it, property prices will rise once again and bricks and mortar will be billed as the only secure investment.

So where does this leave things in Australia?  Well, according to the latest data, the housing market ‘down under’ did okay over the past fiscal year, but in June it witnessed its sharpest declines since 2004.  The generally accepted facts are that interest rates will rise and as a result the housing market will slow in terms of house sales and mortgage applications.  Other than these generally accepted ‘facts,’ opinion is divided.  Some analysts are comparing the Australian property market with America’s and saying foreclosures will rise and the market will dive by about 10% in terms of value in a year.  But others are quick to point out that in Australia things are done differently when it comes to mortgage financing and therefore, whilst prices may dive, repossessions will not soar.  In Australia a mortgage customer has a certain amount of personal culpability and liability over and above the loan being secured on their home.  This generally makes a homeowner in Australia more cautious always.  Secondly, the percentage of subprime mortgages given out in Australia is far, far, far lower than in the US, meaning there is less risk of rising repossessions as a result.

On top of this, Australia is dependent on trade with Asia more so than with America and Europe, therefore it is more shielded than the UK from the US economic fallout for example.  This should protect jobs and the general economy in Australia which in turn should be more positive for the property market as a whole.  And yet, there is another concern affecting property in Australia at the moment, and that is that landlords are pushing rental rates through the roof.  Rising interest rates and strong demand are certainly the cause, but the effect is totally negative in terms of ongoing affordability.  As house prices have risen so high so fast in Australia in the near-term past, there is a situation brewing where unless house prices do fall or landlords become less greedy, (unlikely), there will be those who cannot afford to buy and who cannot afford to rent.  Rather than focusing on the figures and short-term speculation about the percentage by which the market will retract, perhaps more attention should be being focused on this potential problem which is very unlikely to go away or be part of a cycle of ebb and flow in the housing market.

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